Why the Commercial Real Estate Sector Should Prioritize Sustainability

Common worries and challenges surrounding sustainability for commercial real estate firms include the upfront costs of efficiency projects and renewable power, split incentives where property owners are responsible for upgrades but do not reap the benefits of lower energy bills, and competing priorities amongst property developers, banks, architects, engineers, and tenants. Despite these hurdles in altering operational strategies, prioritization of sustainability remains a business imperative due to its inherent benefits: creating a competitive advantage, future-proofing assets, and prepping for the complex landscape of net zero commitments, regulations, reporting requirements, and incentives across local, national, and global regions.

The Business Case for Sustainability: 

• Positive ROI and cost reductions: 
  • The payback period on green building investments and upgrades is shortening exponentially as the cost of these new technologies is driven down by wide-scale adoption. Additionally, energy efficiency measures are proven to significantly lower utility bills and increase property values. 
• Affordable financing options: 
  • Innovative finance models are becoming more widely available. These are energy performance contracts that reduce up-front costs and guarantee savings in the long term. In contract financing models, energy service companies take on the up-front payment and administrative burden and guarantee a particular energy service; the investor, often the building owner, pays a monthly fee until the costs are paid off. Governments and utility companies also provide grants, loans, tax credits, and feed-in tariffs to support the development of renewable energy and energy-efficient technologies. 
• Avoiding physical risk 
  • From rising sea levels that sweep away coastal properties to heat waves that cause energy bills to spike, real estate assets face a diverse set of threats from climate change. Do not fail to consider the monetary impacts of insurance, maintenance, and repair costs associated with physical damages from extreme weather or a suddenly forced transition to new technology in order to comply with regulations. MSCI’s Climate Value-at-Risk Index is a strong measurement tool for investors to quantify the potential impact of climate change.
• Energy Market trends
  • Renewable costs have dropped significantly in the past decade and frequently outcompete fossil fuel generation when it comes to the Levelized cost of producing that energy. Even without carbon taxes and penalties, fossil fuels are getting more costly and volatile as evidenced by geopolitical conflicts like the Russia-Ukraine war exposing the risk of stranded carbon assets, and investment opportunities in renewables and energy efficiency becoming more appealing in terms of price stability and energy security. The World Energy Outlook predicts that fossil fuel emissions will peak by 2025. In the U.S. solar is now 33% cheaper than natural gas. Additionally, trends in 2022 carbon trading markets indicate that the global price of carbon is expected to see a rise, which may translate into higher energy costs and increased operating expenses for real assets. 
• Regulatory Change
  • Building owners must navigate the complexity of various regulatory environments at the local level, but may also need to adhere to regional or national legislation as well. Ensuring compliance with reporting and benchmarking requirements, green building codes and minimum building performance standards, and city emissions mitigation laws are necessary to avoid fines. 
  • More cities and states are implementing carbon reduction mandates, such as New York’s Local Law 97, which requires buildings over 25,000 square feet to reduce their greenhouse gas emissions starting in 2024. Similar initiatives are happening in Boston, Seattle, and other cities across the U.S., and globally.
• Tenant Demand & the “green premium”: 
  • Many commercial tenants now have ESG goals and report to sustainability frameworks. In order to meet or advance these published goals that may be related to the energy efficiency, water usage, and carbon intensity of the spaces they occupy, tenants are increasingly willing to pay a premium to rent or buy buildings with certified sustainability credentials.  For example, a study by the Global Real Estate Sustainability Benchmark (GRESB) found that sustainable real estate assets outperformed their peers in terms of rental growth and occupancy rates. 
• Improved tenant health and productivity: 
  • Transitioning buildings to low-carbon, green alternatives often results in meaningful improvements to air quality and the comfort of living and working spaces, reducing chronic disease and improving the health of tenants and those living within the range of commercial developments.

Buildings that fail to live up to higher environmental standards will increasingly be seen as less valuable or outright risky to invest in. On the other hand, commercial real estate companies that champion net zero carbon reductions, promoting health and wellbeing, and being resilient to climate change will see the benefits of doing so- namely cost savings, increased property values, and investor approval. Waiting to lean into structural and market changes in the world of sustainability is no longer an option for CRE firms that want to ensure the long-term competitive value of their assets portfolio. The good news is that zero carbon and energy-efficient technologies needed to vastly improve the sustainability of commercial real estate already exist and are fairly mature, therefore it is only a matter of taking action now. 

WatchWire can assist CRE firms with sustainability data capture and reporting:

• Remote monitoring & diagnostics: detect and diagnose instances of energy waste and equipment faults in your portfolio with real-time monitoring

• Track Progress toward net zero & emissions reduction goals

• Comprehensively track & measure sustainability metrics: energy consumption, emissions data, water use, waste generation, renewables, and more

• Easily comply with local laws, ordinances, and building codes for green buildings and emissions reductions targets

• Report on results with ease when data is consolidated and automatically audited for compliance. Receive support & data integration with common reporting frameworks such as GRESB, SASB, GRI, SBTi, and more

• M&V: Data also unlocks another essential process for portfolios investing in ESG: measurement and verification. Frequently abbreviated M&V, measurement, and verification is a process for quantifying the precise impact on the energy use of a conservation measure. It puts numbers into a difficult-to-quantify process and makes it easy to calculate the economic impact of an investment.

• Compare building performance across your portfolio and against peers using federal databases, and organize metrics based on geographic region, accounts, meters, and more

WatchWire is a market-leading, sustainability and energy data management platform that uses cloud-based software to collect, automize, and analyze utility, energy, and sustainability data metrics. Our platform is capable of meeting the needs of all business functions including facility managers, accountants, sustainability managers, C-suite executives, engineers, and procurement teams. We strive to provide our clients with guidance on evolving practices, protocols, and the overall regulatory landscape of energy markets in addition to data management with our years of expertise in energy consulting to back it up. WatchWire provides full-service carbon accounting, tracking Scope 1, 2, and 3 emissions, renewable energy credits (RECs), global warming potential, and more. To discover more about WatchWire and its capabilities, you can visit our website, blog, or resource library, request a demo, or follow us on LinkedIn, Instagram, or Twitter to keep up-to-date on the latest energy and sustainability insights, news, and resources.